If you are struggling to pay your bills, you might have fallen behind on your auto loan. As essential as your vehicle is to your livelihood, your monthly payment may be more than you can currently afford. You may be planning on filing Chapter 7 bankruptcy, though, and will be able to resume your payments once you discharge other debts. Yet, you may fear that your lender will repossess your vehicle before you can catch up on them. By understanding the protections available to you, you have ways to avoid this outcome.
How the automatic stay provides temporary relief
After filing Chapter 7 bankruptcy, an automatic stay will immediately go into effect. This injunction puts a temporary stop to any creditor actions against you, including those taken by your auto loan lender. The only way your lender can continue to pursue your outstanding debt is with court approval. Barring this, your vehicle will be safe from repossession until your automatic stay lifts.
Protecting your vehicle once the automatic stay lifts
To keep your vehicle once your automatic stay lifts, you may need to renegotiate your auto loan’s terms with your lender. Depending on your circumstances, your new terms could include a reduced interest rate or monthly payment. While these changes could make it easier to pay your auto loan off, you must reaffirm your debt to make the new terms binding. In doing so, you take full responsibility for the loan’s repayment. If you default, your lender will order the repossession of your vehicle, sell it at auction and hold you liable for any deficiency balance remaining afterward.
You also have the option to redeem your vehicle. This means that you will buy it from your lender for its current market value. For this to happen, though, your bankruptcy trustee must have abandoned your vehicle during proceedings. Or, the amount of equity in your vehicle – the difference between your auto loan balance and its current market value – must exempt it from your bankruptcy case. Keep in mind that you must make a lump-sum payment to purchase your vehicle from your lender. If you do not have the cash on hand, though, you may be able to have a specialty lender loan you the money.
Before protecting your vehicle from repossession, you must be sure you can afford to do so. A bankruptcy attorney can help you understand whether it makes financial sense in your situation.